Stryker's CEO Discusses Q4 2010 Results - Earnings Call Transcript

Stephen MacMillan - Chairman of the Board, Chief Executive Officer and President

Curt Hartman - Chief Financial Officer and Vice President

Katherine Owen - Vice President of Strategy & Investor Relations

Analysts

Michael Matson - Wachovia

Jeffrey Johnson - Robert W. Baird & Co. Incorporated

Matthew Miksic - Piper Jaffray Companies

David Turkaly - Susquehanna Financial Group, LLLP

David Roman - Goldman Sachs Group Inc.

Robert Hopkins - Lehman Brothers

Raj Denhoy - Jefferies & Company, Inc.

Glenn Novarro - RBC Capital Markets, LLC

Derrick Sung - Bernstein Research

Matthew O'Brien - William Blair & Company L.L.C.

Kristen Stewart - Deutsche Bank AG

Frederick Wise - Leerink Swann LLC

David Lewis - Morgan Stanley

Vivian Cervantes - Maxim Group LLC

Doug Schenkel - Cowen and Company, LLC

Christopher Pasquale - JP Morgan Chase & Co

Steven Lichtman - Oppenheimer & Co. Inc.

Joanne Wuensch - BMO Capital Markets U.S.

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Stryker Earnings Conference Call. My name is Melanie, and I'll be your coordinator today. [Operator Instructions].

Before we proceed, the company would like to remind you that certain statements made in today's conference call may contain information that includes or is based on forward-looking statements within the meaning of the federal securities law that are subject to various risks and uncertainties that could cause the company's actual results to differ materially from those expressed or implied in such statements. Such factors include, but are not limited to, weakening of economic conditions that could adversely affect the level of demand for the company's products; pricing pressures, generally, including cost containment measures that could adversely affect the price of or demand for the company's products; changes in foreign exchange markets; legislative and regulatory actions; unanticipated issues arising in connection with clinical studies and otherwise that affect U.S. Food and Drug Administration approval of new products; changes in reimbursement levels from third-party payers; a significant increase in product liability claims; unfavorable resolution of tax audits; changes in financial markets, changes in the competitive environment; and the company's ability to integrate acquisitions.

Additional information concerning these and other factors are contained in the company's filings with the U.S. Securities and Exchange Commission, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q. And now, I would like to turn the call over to Mr. Stephen McMillan, Chairman, President and CEO. Please precede, sir.

Before delving into the quarterly specifics, we'd like to highlight the major strategic milestones achieved in 2010 that have helped transform our company in ways that we think will be critical, not only in navigating through the current environment, but also positioning ourselves well for the future. I'll then pass the call over to Katherine and Curt to go into the specifics regarding our Q4 results before we open the call up to your questions.

2010 was a pivotal year for our company with a number of key accomplishments that in total underscore our unique competitive strengths and that we believe will allow us to deliver top-tier results in both the short and long term.

First, we continued to make major investments in our quality and compliance systems, entering year three of the initial program that is driving myriad benefits to our company and our customers. In 2010, investors were able to see the tangible results of these considerable investments with resolution of the remaining three FDA warning letters. This achievement represented an important milestone for our organization and signaled to us that the path that we've been on is focused and resourced appropriately, recognizing there remains room for improvement and will continue to have quality as a top priority within our organization. Simply put, we've used the challenges we faced to ensure that quality and compliance become embedded in our cultural DNA, and that the focus we've put in place over the last few years does not waver.

We also continue to optimize our capital allocation. With us now generating over $1.5 billion in cash flow from operations annually, we are not limited to a single option, but rather are able to execute on our multipronged cash deployment goals. This includes the ability to both invest for long-term sales growth via acquisitions, while also maximizing shareholder return through dividends and buybacks.

Following the acquisition of the Neurovascular division from Boston Scientific, we have invested $2.3 billion since the start of 2008 in a series of M&A targets that have both strengthened our core franchises, while also further diversifying our company into some of the fastest growth segments of med tech. During that same time, we have also returned nearly $600 million to our shareholders through dividends plus executed over $1.5 billion in share repurchases.

Building on the capital allocation achievements, we closed a number of meaningful acquisitions over the past 12 months, culminating with the Neurovascular deal that now positions us as the global leader in the roughly $1 billion Neurovascular market. With new product launches already underway and a history of delivering innovation, we are excited to have this team as part of the Stryker family.

Beyond acquisitions, we also made the strategic decision to sell OP-1 for use in orthopedic bone applications, a move that allows us to redirect the R&D to other internal projects, which we believe offer the potential for greater shareholder returns, including clinical efforts already underway with BMP-7 for potential use in osteoarthritis and research into other non-orthopedic applications. Combined, our acquisitions and divestitures have further strengthened our sales footprint, while simultaneously sharpening our R&D efforts.

Turning to our decentralized business model, it remains a critical aspect of our competitive advantage and ability to drive consistently strong results. However, as we have grown the top line to over $7 billion in sales, more than doubling our revenues since 2003, aspects of our structure have resulted in inefficiencies in certain areas, and we have opportunities to better leverage our scale. We have taken a number of steps over the past 18 months to put the infrastructure in place and to prioritize areas of opportunity. Although this initiative will have negligible earnings impact of next year or two, longer term, we believe it will provide us with additional P&L leverage that can be redeployed into sales, marketing, R&D or to offset the potential for greater pricing pressure.

And finally, our financial results. At the start of the year, we targeted to deliver constant currency sales growth of 5% to 8% and per-share earnings of $3.20 to $3.30, representing an 8% to 12% increase. Clearly, the slow pace of the economic recovery and its greater-than-anticipated dampening effect on elective surgeries was challenging during the year. Nonetheless, the diversity of our sales footprint that spans a number of key segments in medical technology allowed us to navigate through those challenges and achieve sales growth of the high end of the targeted range, coming in at a solid 8%, excluding foreign exchange. We parlayed the high single digits sales growth into a robust 13% increase in adjusted diluted per-share earnings to $3.33, surpassing the top end of the EPS range we set out at the start of 2010.

Additionally, to further underscore our belief in our future growth prospects, we significantly boosted our R&D spending by 17% in 2010, including a more than 20% increase in the fourth quarter, as we continue to see numerous and exciting opportunities for growth in all of our franchises. With 2011 now underway, we are highly focused on continuing to execute on our financial commitments. Given the underlying strength of our core franchises, coupled with the benefits from a number of strategic acquisitions and the flexibility afforded by our balance sheet, we believe we are well-positioned to achieve 11% to 13% constant currency sales growth in 2011. Excluding both FX and the impact of acquisitions and divestitures, we look to deliver 5% to 7% sales growth. We remain committed to translating our revenue gains into double-digit earnings growth targeted at 10% to 12%.

Although 2011 will undoubtedly present its own challenges, there will also continue to be opportunities that can be maximized by our focus on innovation, execution and investing. Our company has a long history of realizing superior financial results, and we expect this year will be no different.

On the acquisition front, we completed four deals in 2010, including three core deals with the instrument acquisition of the SONOPET aspirator, our CMF group acquiring Porex Surgical and the medical acquisition of Gaymar Industries. All three deals further broadened the relevant franchise product offering and allow us to leverage our existing sales forces. As we've discussed previously, our M&A strategy is focused on both leveraging our core businesses, while also moving into key adjacent markets. The early January closing of the Boston Neurovascular division is clearly an example of the latter, and we're excited about the long-term growth prospects that this market-leading franchise offers.

Just prior to our announcement of the definitive agreement to acquire the business, Boston Neurovascular received a long-awaited FDA 510(k) clearance of its next-generation target coil, a key milestone; given coils represent roughly 50% of the $1 billion worldwide neurovascular market. This was followed in late December with 510(k) clearance of the next-generation coil detachment system that allows for coil detachment in less than 10 seconds, representing a demonstrable improvement over the prior system that required upwards of one minute to detach each coil.

Throughout our due diligence, we consistently heard from customers that the length of time required for coil detachment was the key competitive disadvantage for Neurovascular system, and as such, we're extremely excited about this launch. Although still early, we are highly encouraged by the customer feedback and believe these product introductions will help drive accelerating sales growth over time.

Turning to elective procedure trends and implant pricing, at this point, it's fairly well-understood that the combination of the global economic contraction, continued rise in healthcare plan deductibles, the expiration of COBRA and unemployment benefits and the high unemployment rate resulted in a slowdown in elective procedures in 2010. Yet despite this perfect storm of adverse events, the joint replacement market still achieved year-over-year revenue and unit growth in every quarter of 2010, underscoring the strength of the market and the myriad benefits realized to patients who undergo hip and knee replacement.

And although a subset of patients have clearly deferred the procedure, we continue to expect those patients will eventually return to the surgery pool, given the high success rates of both hip and knee replacements and the lack of options for the treatment of osteoarthritis. When combined with the increasingly debilitating pain associated with OA and its pronounced impact on quality of life, the ability to permanently defer a hip or knee replacement is simply not a viable option for the vast majority of patients. Admittedly, it's not possible to predict in what quarter or even year patients who deferred surgery will represent, and so our financial forecast assumes a joint replacement market that's similar with respect to growth rates in 2011 as we saw in 2010.

As it relates to pricing for our U.S. hip and knee implants, in Q4 we continued to see ongoing Recon pricing pressure partly offset by mix. We also continued to see an ability to garner both price and mix with innovative new products as evidenced by the price premiums we are realizing for ADM and Rejuvenate Hip Systems that were launched in early 2010 and have contributed to a strengthening of the mix contribution in Q4. Although U.S. hip and knee pricing trends remain challenging, at less than 20% of our total sales, combined with a partial offset afforded by mix, we view this as a very manageable headwind as we move into 2011.

Finally, I'll make a few comments on MedSurg market trends, particularly as it relates to hospital CapEx. Recall that approximately 52% of MedSurg sales, including Ascent, are from capital expenditures. In 2010, we experienced a modest and steady improvement in the MedSurg environment aided by our breadth of offering across the various MedSurg franchises, as well as the need for hospitals to resume certain capital purchases.

We also continue to see solid growth from our MedSurg service businesses, which includes Ascent as well as other services offerings. With respect to 2010 representing a catch-up year for hospital capital purchases, we do not believe this was a material factor behind our growth, which may also reflect the nature of our capital product offerings that tend to be relatively lower dollar investments. For 2011, we assumed continued steady growth in our MedSurg businesses, reflecting underlying organic growth, market share gains and the benefit from acquisitions.

With that, I'll turn the call over to Curt.

Curt Hartman

Thanks, Katherine. We're obviously pleased with our fourth quarter results and the full year performance, as they are indicative of both the growth potential and underlying earnings strength of the company. We exceeded our original expectations, while still addressing the challenge of a slowdown in elective procedures and price pressure in hips, knees and spine, while simultaneously making concentrated investments in R&D and M&A to position our company for continued top and bottom line growth.

Moving to the fourth quarter results, sales increased 8.8% on a reported basis and 8.6%, excluding currency. Acquisitions added 3.1% with the Ascent acquisition contributing 2% to our reported growth rate. For the full year, Ascent has contributed 2.2% to our 8.9% reported growth. On the earnings side, our revenue growth and solid gross margin allowed us to generate adjusted diluted net earnings per share of $0.93, an increase of 13.4% over Q4 of 2009. On a GAAP basis, diluted net earnings per share were $0.74, a decrease of 2.6% versus Q4 of 2009. Our reported GAAP earnings included $123.5 million impairment charge associated with our decision to divest the Biotech Bone business, while 2009 included the credit associated with the favorable patent litigation outcome and costs associated with the repatriation of foreign earnings.

Turning to some specifics in the quarter, I will begin with currency, which was effectively immaterial to top line sales. For the year, currency increased reported sales by approximately $70 million or 1%. As noted in our January 10 press release, currency in the first quarter of 2011 moves to a modest tailwind, and if rates hold near quarter-end levels, we would expect the first quarter sales impact to be approximately flat to up 1% when compared to 2010. Using quarter-end rates, the full-year currency impact on top line sales would be an increase in the range of 0.5% to 1.5% when compared to 2010.

Next, I'll discuss the impact of price and volume mix on the top line. In the quarter, company-wide selling prices declined 2.1% on a worldwide basis. For the full year, total company price was down 1.7%. The number of selling days in the fourth quarter was equal with 2009.

Looking at the product segments, I'll start with Orthopaedic Implants, which represented 58% of our sales in the quarter and is comprised of our Hip, Knee, Trauma, Spine, CMF and other implant products. In the quarter, total Orthopaedic Implants delivered a 5% increase on a reported basis and were up 4% in constant currency. On a worldwide basis, Hips reported solid growth of 6% in dollars and 6% in constant currency. In the U.S. market, Hip sales were up 7%, indicative of the traction we're starting to gain with our ADM and Rejuvenate offering. And encouragingly, International Hip sales returned to positive territory, increasing 4% on a constant currency basis.

Worldwide Knee sales increased 3% on both reported and constant currency basis. U.S. Knees reported 4% growth, while in the international market; Knees increased 2% on a constant currency basis. We continue to look for FDA clearance of the OtisMed customized cutting blocks during 2011.

Global Trauma segment recorded nice quarterly gains, increasing 8% in both dollars and on a constant currency basis. Our U.S. Trauma segment posted a strong 12% increase, delivering double-digit growth in three out of four quarters in 2010. For our International, Trauma sales were up 6% on a constant currency basis.

Our Global Spine segment continued to face challenges in the quarter consistent with the broader market, as evident by the 3% decline on both reported and constant currency basis. U.S. Spine sales were down 4% versus prior year, while in the international market, Spine sales were flat.

In summary, total Orthopaedic Implants registered a nice quarter. Domestic results were largely driven by share gains associated with new products, while international gains were paced by strong growth in Japan and the emerging market countries of Korea, China and India. Encouragingly, our Europe business also continued to move towards recovery in total Orthopaedic Implants supported by strong Trauma segment growth and the anniversary of our Q3 2009 distribution and product obsolescence actions.

Finally, we are encouraged by the steady stream of new products that are launched in the international markets, including ADM, Rejuvenate and OtisMed, which are expected to positively impact 2011 results.

Next, I'll turn to the MedSurg Group, which represented 42% of our sales in the quarter. MedSurg today is comprised of our Instruments and Data Feeds [ph] Medical and Ascent Healthcare businesses. MedSurg reported another solid growth quarter with sales increasing 15%, both as reported and on a constant currency basis.

In total, acquisitions added approximately 8% to MedSurg, while the core MedSurg business reported growth of 8%. Of note in the quarter, domestic MedSurg sales, excluding the acquisition impact, increased 9%, reflecting the strength of our underlying capital and disposable MedSurg product offering.

Sales for the Global Instruments segment again posted strong results growing 10% in the fourth quarter on both a reported and constant currency basis. In U.S. market, Instruments reported an impressive 11% gain, while internationally, Instrument sales also advanced nicely, recording a 9% gain in constant currency?

Our Endoscopy offering reported a global sales increased of 5% on both a reported and constant currency basis. In the U.S. market, Endoscopy sales recorded a modest 2% increase, while the domestic results were below recent quarterly trends. Overall, we feel good about the underlying performance and prospects for our domestic Endoscopy business given order trends. Internationally, Endoscopy sales continue to strengthen, delivering 11% constant currency gain.

Overall, our MedSurg businesses continued to achieve steadily improving growth in the underlying businesses, further aided by acquisitions that are broadening our product offering and importance to our customers.

I'll now turn to the remainder of the income statement, providing comments on both the fourth quarter and our expectations for 2011. I will begin with our gross margin performance. Gross margin was again strong in the quarter at 68.7%, representing 100-basis-point increase over fourth quarter 2009 levels. For the year, gross margin of 68.8% finished slightly above our expectations and was up 130 basis points over 2009, recognizing the comparison benefited from the depressed 2009 base and currency variations. Going forward, we do anticipate year-over-year gross margin improvement, partly resulting from our focus in our manufacturing operating model.

Research and development investments represented 5.6% of sales in the quarter, while increasing 24% over 2009 levels. For the year, R&D finished at 5.4% of sales and increased 17% over prior year. Our heightened level of R&D investment throughout 2010 reflects both our commitment to innovation, as well as the flexibility we retained in our business model to make investments that will drive long-term growth, while delivering leveraged earnings gains. Our commitment to increase R&D spending will remain in place as we enter into 2011, as we expect R&D investments to increase well above our sales growth rates and approach 6% of revenues. Clearly, the addition of the Neurovascular business is influencing in total spend, but even absent this addition, we see R&D in our core business increasing at double-digit rates.

Selling, general and administrative costs increased 17% over 2009 levels in the fourth quarter. Recall 2009 SG&A was favorably impacted by a $62.5 million patent litigation gain recorded last year.

Overall, excluding the prior-year impact of the gain in SG&A, expense growth in the quarter was 6% and SG&A decreased 90 basis points to 36.8% of sales versus 2009. For the year, adjusted SG&A decreased 90 basis points as a percentage of sales versus 2009 levels. In 2011, we expect to continue the trend of decreasing SG&A as a percentage of sales as we focus on operational efficiency, while reserving the flexibility to make strategic investments across our businesses. Operating income increased 13% on an adjusted basis. The operating margin finished the quarter at 25.6% and, for the year, increased a robust 150 basis points versus prior year to 25.3% of sales.

Other income and expense reduced pretax income by $7 million in the quarter. Components of this included investment income of $12 million and FX transactional gains of $8 million, offset by interest expense of $27 million. The company's effective income tax rate was 22.2% for the fourth quarter of 2010. The fourth quarter tax rate reflects the tax benefit associated with the impairment of the OP-1 bone assets and the legislative action to approve the R&D tax credit and related corporations' look-through rule. Absent these items, the company's effective income tax rate was 27.7% in Q4.

For the full year of 2010, the company's adjusted effective tax rate was 27.3%, which does include the impact of the R&D tax credit and related look-through rule on our full year results. From a comparative, this allows alignment with both 2009 actual and 2011 expectations. For 2011, we see our tax rate moving lower as a result of increased production coming from lower tax jurisdictions and expect to rate between 26.5% and 27.3%.

In terms of the balance sheet, we ended the year with $4.38 billion of cash and marketable securities, up $1.43 billion from year end '09. Obviously, this balance has been reduced given the January 3 closing of the NV transaction and the associated $1.4 billion payment. That said, we think the remaining cash balance gives us tremendous flexibility. And as a reminder, we have $1 billion of debt on the balance sheet associated with our January 2010 debt offering.

Asset management remains under solid control as accounts receivable days ended the year at 56 comparable with the prior year. Days in inventory finished the quarter at an improved 154, which was down 20 days sequentially versus third quarter, but up nine days against the prior year level.

Cash flow from operations was again strong in the quarter, generating $518 million and free cash flow of $573 million. For the year, cash flow from operations increased to $1.55 billion from $1.46 billion in 2009. On the share repurchase program, as announced in our pre-release, we repurchased 6.1 million shares at a cost of $314 million in the fourth quarter. This brings total 2010 share repurchases to 8.3 million shares at a cost of $426 million. We currently have approximately $325 million remaining on our 2009 authorization and $500 million from our 2010 authorization.

We referenced diluted shares outstanding in December finished at $394.8 million. As we have stated previously, you should assume that the goal of the authorization is to prevent dilution, as well as position the company to opportunistically acquire shares.

In summary, 2010 was a solid year in which we demonstrated the ability of our diverse business to absorb market challenges, while still delivering on total company performance expectations. Further, we continue to deploy the resources of our balance sheet to enhance our core franchises, expand into the meaningful adjacencies and increase total shareholder return. Heading into 2011, we feel good about the strength of the company and our ability to continue to grow our revenue and earnings as reflected in our 2011 outlook.

Turning to our outlook, the financial forecast for 2011 includes a constant currency net sales increase of 11% to 13% as a result of growth in shipments of Orthopaedic Implants and MedSurg Equipment, as well as revenue from the recently acquired Neurovascular business. The foreign currency exchange rates we hold near current levels, we anticipate net sales will be favorably impacted by approximately 0.5% to 1.5% for the full year of 2011. Excluding the expected impact from foreign currency as well as acquisitions, sales growth from our core business is projected to be in the 5% to 7% range.

Turning to the P&L, I mentioned in my earlier comments our expectations for each of the key areas to include gross margin, R&D and tax. Additionally, we continued to invest in our quality and compliance initiatives, as we complete the initial three-year investment. We see ongoing opportunities for leverage in SG&A, as a percentage of sales, as we look to remain disciplined with respect to discretionary spending, while retaining the ability to make the necessary investments.

Finally, we expect adjusted diluted net earnings per share for 2011 will be in the range of $3.65 to $3.73, an increase of 10% to 12% over adjusted diluted net earnings per share of $3.33 in 2010. We also anticipate acquisition and integration-related charges associated with the recently completed Neurovascular business to reduce reported diluted net earnings per share by approximately $0.21 to $0.25, including transaction costs, additional costs associated with inventory step-up and other integration costs as outlined in our press release.

In closing, we are comfortable with first-call estimates for both the quarter and full year. With that, I'll turn the call back over to Steve.

Stephen MacMillan

Thanks, Curt. In closing, we're pleased that we reestablished strong growth in 2010, while also making significant progress on our quality and compliance initiatives. We believe we are well-poised entering 2011 to both face the challenges that will invariably exist, while also continuing to capitalize on emerging opportunities. We look forward to executing on our financial goals and delivering strong results that will continue to define Stryker as a leading player in the medical technology market. With think that, we'll now open it up for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of David Lewis with Morgan Stanley.

David Lewis - Morgan Stanley

Steve, I wonder if you could talk a little bit on metal-on-metal implants and the impact you're seeing in the marketplace and specifically your business? And clearly, what some of your competitors are reporting, it's having an impact certainly on their hip franchises mostly on internationally but somewhat in the U.S. as well. I wonder if you see this as a share opportunity for Stryker in your business or sort of the elimination of a historical headwind? And if you are gaining share based on metal-on-metal, do you find opportunities to both gain Hip share and then obviously, levers that over to the Knee business as well?

Stephen MacMillan

It certainly really at minimum, it eliminates the headwind. As many of you know, we've lagged the hip market for five years running, largely because of our decision to stay out of metal-on-metal. We feel good about that decision now. We would certainly hope that it will create not just the loss of a headwind but also the opportunities to start the gain on some Hip market share and where possible, certainly, we will always seek to leverage that over to a very strong Knee franchise. So we'll certainly see how it plays out, but I think we really do like our position right now with some new product launches in the Hip space and given the market dynamics.

David Lewis - Morgan Stanley

And then Curt, just thinking about the comments you made about Neurovascular, making the acquisition, I think you guided or assuming in your wandering integration period, you'd see rather flattish growth for this year, but kind of considering early traction with some of the new products and the fact that the prior asset had not generated new product pipeline growth in quite some time, is that flat expectation for growth reflect some conservatism or just some contra sales synergies we should be thinking about to how with significant new products, we still kind of see kind of flattish outlook here for '11?

Curt Hartman

David, I think there's a couple of items in there that we would point to: one is the integration of an acquisition of this scale especially on a global basis; and two, would be the timing and the ability to ramp up production as well as the training and rollout of the new product. So we're very excited about the target coil approval. We're very excited about the detachment system approval. There is certainly a long, long pathway to product rollout on a global basis, as well as bringing an education of both the selling organization as well as the customer base and keeping in mind that roughly 2/3 of this business is OUS. You're going through many country registrations with the new products as well. So we're trying to factor in all of those various factors into our expectations for this year. And so, I think that's when we get to the neutral to slightly accretive on EPS as well as very muted expectations for top line growth this year.

Operator

Our next question comes from the line of Rick Wise with Leerink Swann.

Frederick Wise - Leerink Swann LLC

We've got some mixed signals early on here on the economy pricing utilization. I'd be curious to get your perspective. We heard from J&J today, it seems like a pretty somber message on utilization pushback on pricing pressure, et cetera. But your numbers again seemed to suggest that, at least, a little more optimistic, but your perspective generally?

Stephen MacMillan

Clearly, there's more pressures, but ultimately, we still love the businesses we're in. And I think as Katherine pointed out, for all of the perfect storm against the reconstructive implants last year, they still grew every quarter. Fundamentally, the demographics are on our side. We continue to believe that if we're offering good products and these procedures are not indefinitely deferrable, I think we still feel pretty good about the market dynamics, and most importantly, I'd say we feel really good about our position within the marketplace right now.

Frederick Wise - Leerink Swann LLC

And maybe turning to the international part of Hips and Knees, which did grow a little slower particularly on the Knee side, can you give us a little perspective on just maybe your feelings about the economic outlook and is that a concern for this year? And maybe extending that, I know you've been through some product transition and some distributor transitions. Are we through all that? And how do we think about that for 2011?

Stephen MacMillan

Sure, thanks, Rick. I think internationally, certainly, our Knee business had suffered particularly in Europe from the distributor changes we've made and also a lot of the products that we have obsoleted during the year, as well as frankly some slowness in rolling out instrumentation for our Scorpio Knee line, which was really a hangover from a lot of our quality and compliance initiatives. I think we feel better exiting the year and coming into 2011 than we did in 2010, and we'd probably hope for a modest pickup there. And having said that, I think Europe, with the overall market dynamics, may still be soft here for the first half of the year and maybe for the full year. But again, I think we feel great about how we're positioned and globally, probably, it would be a little bit better next year in 2011 rather than 2010.

Operator

Our next question comes from the line of Matt Miksic with Piper Jaffray.

Matthew Miksic - Piper Jaffray Companies

I wanted to follow up on a question on acquisitions. First, just in terms of the trends of Gaymar and Ascent, you've had Ascent here for coming up on a year and Gaymar for a quarter or so. As you think about trends for 2011, similar to your point on Neurovascular, what kind of consideration do we need to give to integration, this sort of new product registration? Are there sort of sideways growing with your market? Or is there a transition period where we might be kind of flat or down for a couple of quarters? Any color you could provide, then I have a follow-up.

Stephen MacMillan

Sure, Matt, I think we feel pretty good about our ability to integrate those and keep those growing, and particularly given product flow and everything else, and Gaymar coming right into our Medical business. That integration looks to be going fine. And Ascent is still on a very nice space. Obviously, a little bit of growing pains here and there, but overall, we continue to really like the outlook and trajectory for that business.

Matthew Miksic - Piper Jaffray Companies

And then just your comments on pricing, Steve, following up on Rick's question. I guess specifically on Spine, not that there's plenty of things to learn about in the Spine space but one of the things that came out of the meeting this morning with J&J, it was kind of like sequential easing of pricing pressure. It's pretty consistent pricing in Orthpedics, as you've talked about at Spine, maybe its comps; maybe the low-hanging fruit has been picked. But I'm curious to get your outlook on whether you think that's stable, that negative mid-single digits, which is what the industry seems to be talking about for a while before, actually, it may seem easing of that pressure over the next several quarters?

Katherine Owen

Maybe I'll jump in and take that. We don't break out price specifically by franchise, although we've alluded to in Q4. We're in similar in that. We've been seeing ongoing pricing pressure in the Spine business, similar to what the market is seeing. I think it's too early to say that we've turned the corner. We think there's a stabilization trend, how much pricing does or doesn't improve as we go into 2011, I think it's just probably too early to say. And a lot of that is going to be driven by new product introductions and innovations that come into the market. But overall, it's still a challenging market, but one that doesn't feel like it's worsening.

Operator

Our next question comes from the line of Mike Weinstein with JPMorgan.

Christopher Pasquale - JP Morgan Chase & Co

This is Chris Pasquale here for Mike. Just to follow up on the question about pricing. We've seen the impact on your business overall increase pretty steadily for the past six quarters or so. What does your initial 2011 revenue guidance assume for a pricing headwind for the year?

Curt Hartman

It's an interesting question because it is basically an assumption and it's probably consistent with what we saw this year. We don't, right now, see any things that would point us to worsening pricing trends in Hips and Knees. Katherine's already commented on Spine. And overall, on a global basis, we feel pretty good about what we're seeing in the rest of our business. Again, keeping in mind that most of the focus on pricing in these discussions have been around Hips, Knees and Spine, and Stryker's portfolio of business allows us to absorb a lot of that through other opportunities for innovation and the other products we offer. So I would say our assumptions should be modeled similar to what you saw through the course of this year.

Christopher Pasquale - JP Morgan Chase & Co

And then you signaled coming into 2010 that you expected to be active on the M&A front and it did end up being a pretty busy year for the company. As you look at 2011, you talked about some of the integration efforts you have to do with the deals you've already done. Are you still in a position to be aggressive looking at opportunities? Or do you have your hands full with the deals you did over the past few months? And if deals aren't the first call in cash, did that change how you think about the speed of share buybacks?

Katherine Owen

We've really continued to reiterate a very consistent strategy, as it relates to our utilization of cash, and it is being three-pronged. We think, given our pretty significant ability to generate cash, it really does give us the flexibility to employ a three-pronged strategy. It's going to include M&A. It's going to include buybacks and dividends, which you saw another healthy year-over-year increase in dividend. There's no change to that strategy. We're fairly large in terms of the number of franchises. So, for example, the integration of Gaymar into Medical really has no impact on anything outside of that division. So the nature of BD, it's impossible to predict how much volume comes through, but there's been no change to their overall strategy. We still think there's a lot of opportunities to leverage our core with Gaymar, Porex, SONOPET, being examples of that, as well as opportunistically look at adjacent acquisition strategies like Neurovascular. And there's no change to that overall guiding principle.

Curt Hartman

And Chris, I would just pile on here and remind you, I think we feel really good about the underlying strength of our business, which allows us to be disciplined acquirers, and we want to continue to pride ourselves on being very disciplined acquirers. And I think the ability to have a strong base business puts us in that position, and we expect to continue to do the same.

Operator

Our next question comes from the line of Vivian Cervantes with Maxim Group.

Vivian Cervantes - Maxim Group LLC

I just wanted to follow up a little bit on the new Hip products that are being rolled out. Given the performance in the U.S., can you just give us a sense for where we are with the launch? I think at one point we thought this could be a two-year process? Is it still a two-year process or did we accelerate, given the weak macro?

Stephen MacMillan

We've always described ourselves with Recon launches, being a little bit of a freight train, Vivian. It takes us a little, while to get going, and I think that's exactly what we're seeing. I do think we were starting to accelerate our trend in the final quarter of the year and feel pretty good about where it should go this year. But I don't think -- we're not fully ramped up yet but certainly on track.

Vivian Cervantes - Maxim Group LLC

And just another follow-up, also on the Neurovascular business and the new coil and detachable that was recently approved. Can we sort of say that maybe these two approvals will protect current market share primarily? And how does that compare with competing products out there from a market share gain standpoint?

Curt Hartman

I think there's a couple of answers to that question. Number one, the organization has been waiting for these new products. So it's a great confidence-builder in the organization. The customer base who's been using the Neurovascular products for many years is thrilled to see this organization bringing them new solutions on the innovative front. So our expectation is it will both stabilize any market share erosion that may have occurred over the last couple of years. I think when we went back and did the math in the last five years, there were approximately 20 new products launched into that space, while this business had none. So the competitive attack in the last five years has been significant. So the ability to give this organization a new product, address customer issues, stabilize their customer base. And then ideally, as we continue to roll out a pipeline of other items throughout the year and into the following years, get the organization back on offense would be the expectation.

Operator

Our next question comes from Bob Hopkins with Bank of America.

Robert Hopkins - Lehman Brothers

So the negative 2.1% price mix that you talked about this quarter, that, I think it's a little bit worse than what you're talking about in the third quarter. And I know you're saying for 2011 that you think that it will be about the same as what you saw in 2010. So, I'm just wondering if you could help us try to give some confidence in your statements that things won't get worse in 2011 from a price mix perspective? I'm just curious what are the kinds of things you're seeing out in the marketplace that give you that confidence at this point?

Katherine Owen

I think, first of all, that negative 2% price, that's pure price. So there's going to be an offset as we've been seeing throughout the year, an offset to that comes from mix. But when we're reporting price, we're talking about just the pure price impact. And overall, in terms of the outlook for 2011, a lot of it comes from the cadence of new products that we expect to be launching, the mix benefit that we are seeing to help offset that and just overall trends we're seeing with respect to the market that don't indicate a significant worsening in the overall pricing trends. It's going to bounce around from quarter-to-quarter, as we saw in 2011. But overall, we don't think you're going to see a demonstrable step-down.

Kristen Stewart - Deutsche Bank AG

So just to be clear, within that 5% to 7% top line growth, there's an assumption that price mix combined is down 1% to 2%? I just wanted to make sure we've got it.

Curt Hartman

That's price, Bob.

Robert Hopkins - Lehman Brothers

Just price, so that's not net of mix. And then I wanted to ask a question about gross margin. Are you assuming some gross margin benefit in 2011? And then you've talked previously about how you've undergone, obviously, this quality of journey over the last two and a half years. And now you've put the head of the quality initiatives also in charge of manufacturing. And you've implied that on this call, you see some longer-term gross margin benefits to come from that. I'm wondering why those are so long term, as you've kind of been on the quality mission for two and a half years. Shouldn't we see more of that in 2011? And just if you wouldn't mind talking about gross margin, that will be helpful.

Curt Hartman

Sure, Bob. In my comments, in the scripted section on gross margin where that we did see opportunities for improvement in 2011. I want to be measured in that comment, because some of the pick-up you saw this past year in 2010 was directly attributable to some pretty wild swings in currency, especially when you look at our distribution model and where our manufacturing occurs. To the point of shouldn't the results be sooner rather than later. I think one of your statements hit the nail right on the head. The last two years, two-plus years, had been 100% focus on the quality initiatives. That journey continues on the plan that it's on through at least the first half of this year, and we'll constantly be working on enhancing quality systems. The same individual who's responsible for that, as you noted, is also responsible for our global manufacturing network. And as somebody who's watched Stryker for a long time, you know we have a pretty diverse geographic manufacturing footprint. So corralling all of those processes and focusing on the biggest priorities takes a bit of time, and those are the things that we're working through right now. I would tell you over the long term, I couldn't be more excited about the opportunity, but it does take time. And in a highly compliant environment, we cannot afford to rush and make mistakes because any mistake would simply move us back well, well back into a quality journey that we feel like we're making forward progress on. So we're going to be very measured in our approach here and be very disciplined in our approach here.

Operator

Our next question comes from the line of Joanne Wuensch with BMO Capital Markets.

Joanne Wuensch - BMO Capital Markets U.S.

In order to make these numbers work by my calculations, you're looking at sort of gross margins flattish and a step-up in SG&A. I would assume some of that is acquisition integration waiting for you guys to do your own quality control and put your management magic on your acquisitions. Having said all of that, how much can you get back to the wonderful leverage we saw in 2010 as we look into 2012?

Curt Hartman

We just put out 2011 guidance. I'm probably not going to jump into 2012 just yet. But obviously, when you do an acquisition, especially an acquisition that has the scale of the Neurovascular one, you're going to see the top line benefit, and you're actually going to see the deleveraging in the P&L. Clearly, one of the goals is to work through the integration and get back into leveraging that additional revenue. And you should assume that our goal is to do that as quickly as reasonably possible, while still sticking with the overall design of where we're going with the Neurovascular business along with our other core franchises. So, I'm not going to give any specifics in 2012, but obviously, that is one of the benefits, frankly, of doing the acquisitions, as you get to the top line acceleration and you have to organize around the P&L leverage in the future periods.

Joanne Wuensch - BMO Capital Markets U.S.

Just as a follow-up then, should we assume then as we go throughout the year that leverage is going to become more and more obvious? A simple question but I'm also asking on the gains to the quarters?

Curt Hartman

It's a simple question, but things, if we know anything about the business; they don't tend to run very linear quarter-over-quarter. They tend to move around quarter-over-quarter. So I would hope that a year from now, you could look back and see our progress. I'm not going to point that each successive quarter is going to materially get better. Certainly, on the integration side, you would expect a lot of those charges to be earlier in the year as we work through some of the big items, but they all take time. And there's always other investments that seem to somehow materialize.

Operator

Our next question comes from the line of Adam Feinstein with Barclays Capital.

Unidentified Analyst

This is Matt [ph] for Adam. Two questions. So one is where everybody's been focused. I just want to make sure I'm hearing your message correctly. So in the Hips and Knees this quarter, there was some improvement, but I guess what you're saying is really the market's not improving much, but Stryker's doing a little better. It's a combination of product launches, lapping some issues and maybe some competitive disruptions. Is that sort of a fair characterization?

Katherine Owen

Yes, I think that's a fair comment, recognizing we haven't seen everybody report yet. But that's probably the way it looks right now.

Unidentified Analyst

And then one area where people haven't really focused on this call is Trauma, where you had pretty good results, and that strung together a few good quarters there. I'm just wondering what your expectations are for your business and for the market going forward? That's something that we haven't talked about in a while.

Katherine Owen

We don't give guidance by individual franchise. We are pleased with how our Trauma business is doing. Part of that are moves that we did, going back a number of years, when we do have a hybrid sales model. And we think that allows us to execute adding products into the bag. So we've got great sales force focused at expanding products offering. Overall, those markets continue to be well. They do move around. If you look at the overall, over the years, quarterly trends that can be impacted by economic fluctuations or weather, et cetera, but overall, we feel good about that business. It's an upper single-digit growth market, we believe, and we feel well-positioned to continue to deliver good results in 2011.

Operator

Our next question comes from the line of Glenn Navarro of RBC Capital Markets.

Glenn Novarro - RBC Capital Markets, LLC

A question on Spine. It looks like this was a quarter where you've lost market share in Spine. And I recall a year ago at this time, we were highlighting the new cervical plate as a way for Stryker to kind of recapture share and start growing the business aggressively again. So as we look out to 2011, understanding the market is under pressure, what is the strategy for Stryker to recapture its share and get back to market growth or better than market growth? That's question one. And then I also remember last year being at AAOS, and you're highlighting your kyphoplasty balloon. Any update on that product as well?

Stephen MacMillan

Sure, on the Spine market, I would tell you, I think we, for a number of years, have been very good at rolling out innovations and sales force expansion. The dynamics of the Spine market last year we probably slowed down our sales expansion. And while we have the cervical plate, we didn't have enough other things to really keep the franchise going. And I think we've been retooling some of the R&D efforts there to get back to a little bit better cadence of product flow. In terms of the iVAS balloon that we launched, it's off to a nice start, a steady start. And again, we point that out as one of those things. We have launched a lot of singles every year, not doubles and triples and home runs that two, three, four or five years out become meaningful businesses. This one is another one of those where nothing meaningful right now, but we like the trajectory.

Glenn Novarro - RBC Capital Markets, LLC

So just one follow-up, Steve, on Spine. So, can you give us a sense of what are the products that may help you reenergize this business? Or should we just be assuming that your Spine franchise grows below market growth in 2011?

Katherine Owen

We haven't gone into details on new products. As you know, we don't... highlight some of the key products that we're introducing at the upcoming academy meeting across major businesses, as well as our flowing that out at our analyst meeting. I think right now we're pretty tempered regarding growth prospects expectations, both for the market and candidly for our Spine business, and as we look to improve the trends we saw in 2010.

Operator

Our next question comes from the line of Doug Schenkel with Cowen and Company.

Doug Schenkel - Cowen and Company, LLC

My first question relates to, I guess, really the diversity of your business. As you've noted recently in public presentations, you've been diversifying for the better part of, I think, three decades at this point. But clearly, your M&A activity's picked up over the last year or so. So, I guess what I'm wondering is what opportunities exists for you to drive growth by picking up shares specific to a broader product offering in the aggregate? And would you expect this to pick up momentum, given recent activity as well as I guess the need for the global healthcare system to control costs?

Stephen MacMillan

Doug, I think we feel really good about our position in every market we're in, in terms of being in sufficient scale to compete very well, and that's where we just looked for the little tuck-in acquisitions here and there, but we feel very well poised. And we always said during the '08, '09 time period, we thought there would be buying opportunities from the economic downturn and that we have positioned ourselves to capitalize on them. Right now, we've got a great set of businesses, all of which are of meaningful scale to compete and certainly don't need anything in terms of getting bigger.

Doug Schenkel - Cowen and Company, LLC

But I guess the crux of the question is, really, is there a very concerted effort to maybe get broader take to go after this? I know fumbling's not the right word or the word that we want to use, but is there the ability to actually broaden the portfolio and actually gain share that way by being a sole-source supplier?

Stephen MacMillan

We still believe more deeply in just going deeply within each product line and then looking for the leverage opportunities across. So, we're not going to diversify for diversification's sake. We're diversifying as we've done for three decades, as we see new business opportunities that are close into our core to keep expanding out.

Operator

Our next question comes from the line of David Roman with Goldman Sachs.

David Roman - Goldman Sachs Group Inc.

I wanted to ask one question on patient mix and then a follow-up on strategic direction. In at least our conversations in orthopedic surgeons, what we've heard is that generally speaking, they have not seen a tremendous slowdown in operating activity but over the course of the year. We saw the Medicare patient population make up a greater percentage of their patient volumes, which to some extent may explain some of the negative mix or dollars slowdown that we've seen in the industry. I was hoping to get your perspective on that and where we sort of are in Medicare, non-Medicare in the Hip and Knee market and whether you think that, at all, has had an impact on reported dollar growth in 2010?

Stephen MacMillan

Yes, I think there's been some element of that, David, certainly with people unemployed and younger people not having as much insurance. Again, given the breadth of our portfolio, not making a huge difference probably.

David Roman - Goldman Sachs Group Inc.

And then in terms of M&A, one thing that you've talked about in the past is that given the quality initiatives you've undertaken, that part of the evaluation of a target will be either to what extent they are at the same level of quality systems that you are or the costs associated with bringing them up to par. Can you just maybe highlight how that impacts the due diligence process of potentially the pacing at which you do transactions?

Katherine Owen

I think this is reflective of another one of the key focus areas in the due diligence process. We've obviously learned a tremendous amount to our own quality efforts and applying those learnings to acquisitions that it just adds to the list of areas that we focused on.

Curt Hartman

I will tell you the Boston Scientific business, they had made tremendous progress, and I would bet that we valued where their new quality systems are, perhaps, more than other people, because they have done a great job. And we feel great about that one.

Operator

Our next question comes from the line of Matthew O'Brien with William Blair.

Matthew O'Brien - William Blair & Company L.L.C.

Just curious on the Hip side of the market, given your good performance in the quarter compared to some of your competitors. Any sense for how much of that was more shares shipped within a specific surgeon base, be it that they shifted from their metal-on-metal product over the your metal on product versus new shares that you're taking in terms of new accounts?

Katherine Owen

I think it's too early to really have that level of granularity. It's just one quarter, and its one quarter where everybody hasn't reported yet. So, I think we're clearly seeing a lit bit of movement in metal-on-metal, but I don't think we can get that granular at this point.

Matthew O'Brien - William Blair & Company L.L.C.

So you don't see it kind of from AAOS of last year through this point?

Katherine Owen

Not beyond what we've seen in the market where there's clearly been some contraction, how significant it's been, it's still relatively early. Surgeons tend to move pretty slowly one way or the other.

Matthew O'Brien - William Blair & Company L.L.C.

On R&D, a pretty significant increase in spending 2010 and expected in 2011. Is that really focused on more clinical studies or post-market studies in support of your current products or upcoming products versus new product development?

Curt Hartman

I would tell you it's mostly new product development. The range of products we offer cover all classes of approval, and to the extent that there are heavier clinicals required, we have experienced with that across our product offering. This is really an initiative to ramp up more effort on pure new product innovation and, particularly, as it relates to coming out of the remediation efforts where a lot of remediation has started with R&D in getting our R&D organizations around the world focused on pure new product initiatives.

Operator

Our next question comes from the line of Kristen Stewart with Deutsche Bank.

Kristen Stewart - Deutsche Bank AG

First, just a clarification on capital. I just want to make sure I heard you right with, you said with U.S. Recon prices down, but it was almost offset by mix. So net-net, price mix is still negative in the quarter?

Katherine Owen

Partly offset by mix, net-net, still negative. It's very similar to the trend we saw throughout the year with a little bit of the strengthening of mix in the fourth quarter.

Jeffrey Johnson - Robert W. Baird & Co. Incorporated

Going back to the pricing as we see the decline about 1% in the first quarter to 2.1% now. Would you guys say that, that trends in price getting more negative is more of a reflection of the overall orthopedic trends? Or are there any worsening in price within MedSurg? And then my second question is can you give a little bit more granularity on the $0.21 to $0.25 related to the Boston Scientific spend? And is there amortization included within there? Or is that included within your adjusted guidance? Just kind of what does that $0.21 to $0.25 make up?

Curt Hartman

So the first question there was pricing, and just a reminder, Q1 pricing was negative one-point

[Audio Gap]

1.3 and then we to negative 1.5 then 1.8 then 2.1. So we have 80-basis-point movement over the course of the year. It's not anything that's going to require his to radically change our offense, especially when you look at the scale of new product rollouts, both in the U.S. and international markets. So nothing dramatically different outside of what we would refer to as normal pricing pressure, especially if you look back over the company's reported price change over the five-year period when we positionally bounced between plus two to minus two. But I don't think we see anything in the pricing that's dramatically challenging outside of a few key segments, which we've highlighted as Spine, being what we felt was the biggest pricing pressure area. And that goes back to Q4 of '09 when we made that comment. On the NV acquisition, those charges that we've called out in our press release are specific integration-related costs. There's a big inventory step-up charge that materializes over time, and there are other integration-related costs that could be in the form of outside services provided to the deal or just other onetime costs associated with transition of that business from one parent to the other.

Operator

Our next question comes from the line of Raj Denhoy with Jefferies.

Raj Denhoy - Jefferies & Company, Inc.

You mentioned OtisMed is kind of a work in progress. I'm curious if there's been any updates you could provide with what's happening with the FDA? And if nothing there, then perhaps any updates on your expectations for what that product could do to the Knee business?

Katherine Owen

No change in expectations. Clearly, we would have been hoping for 2010. As many of you know, it's predicting FDA timelines. And it has become more challenging. So we're hopeful for 2011, we still believe this is going to be a nice product. For our Knee growth, we were seeing the benefit of that prior to the acquisition at sometime in 2011, but nothing more specific than that is the current goal.

Raj Denhoy - Jefferies & Company, Inc.

So, you're not even narrowing down the first half, second half or anything at this point?

Katherine Owen

No, not at this point.

Raj Denhoy - Jefferies & Company, Inc.

On the Ascent deal, a lot of moving parts on the MedSurg side in the fourth quarter, but if we -- our numbers, and I'm not saying they're correct, but it looks like Ascent may have been flat to slightly down from the third quarter on a dollar basis. Is that correct?

Curt Hartman

I don't think you would assume that we're going to break out our business to the size of Ascent on a dollar basis. I think you have to recognize it across MedSurg. Things, as I mentioned earlier, don't always flow evenly one quarter over the next, and I would point you back to Steve's comments that, overall, we feel pretty good about where Ascent stands after the first year. And as we head into 2011, we still have growth expectations for that franchise.

Operator

Our next question comes from the line of Dave Turkaly with SIG.

David Turkaly - Susquehanna Financial Group, LLLP

I seem to remember some litigation that went on between Trident and Microsys [ph], part of J&J. I'm just curious on that detachment system in the new coil, are you comfortable with the intellectual properties that stands today?

Curt Hartman

We're very comfortable with the intellectual property, and obviously, the amount of due diligence around intellectual property was substantial. So I would say that we feel very good. I can't predict the future as it relates to legal. So I never say never as it comes to legal event in today's society, but our due diligence, we feel, is very comprehensive.

Operator

Our next question comes from the line of Derrick Sung with Sanford Bernstein.

Derrick Sung - Bernstein Research

Maybe if you could give us a little bit more detail and color on what you're seeing in MedSurg? You've been sort of a full year now in terms of recovery from the major impact from the economic downturn. And I'm just wondering, as you look at sort of hospital CapEx spending trends and habits of now versus pre-recession, are you seeing any major changes in terms of the way that the hospitals are approaching their CapEx spending that would lead you to believe that there would be sort of moving forward, a fundamental shift in the way that you view the business?

Curt Hartman

Derrick, I don't think there's any fundamental shift of how we view the business. I think if there is a change in MedSurg capital spend behavior, it's at the approval levels. It used to probably be a little more close to the action. It probably moved up higher in the organization, perhaps to the C-suite. And in some cases, that has been relinquished back down to high-level materials management or purchasing folks. And in other cases, continues to reside of the C-suite, and if there is a change in behavior, it's probably our selling organizations have had to learn how to sell on a broader basis, as it relates to capital equipment in the hospitals.

Derrick Sung - Bernstein Research

And specifically, this quarter in Endoscopy, I know you kind of talked about lumpy quarters, but what specifically drove the weakness there? Was it share loss in your view or just some big accounts for sales that didn't go through or can you kind of give any deep color there?

Stephen MacMillan

It's timing. Don't worry about it. It's just timing. It will be fine. We're not going to lose any share.

Curt Hartman

Similar to what we saw in Medical earlier in one of the quarters. I feel very good about those businesses.

Operator

[Operator Instructions] Our next question comes from the line of Michael Matson with Mizuho Securities.

Michael Matson - Wachovia

Given your decision to sell the OP-1 business, I was just wondering if you could provide us with an update on your overall strategy in the Biologics area and whether or not you would rule out developing or acquiring any other higher-end biologic products in the future?

Stephen MacMillan

I think, Mike, we're not going to get into strategic direction on this call. We'll probably lay some a little bit more of that of at our analyst meeting later in the year. But I think you can suffice to say, we're looking, still, in the biologic area, and we'll talk about kind of where we're headed.

Katherine Owen

As we commented on the press release, we are still investing in OP-1 outside of the orthopedic bone application.

Michael Matson

And then just on MedSurg, can you give us an update on where you're at, driving that business into the international markets and how big of a driver that could really be for MedSurg overall?

Stephen MacMillan

It continues to be good. Previous to the last question, I think our International Endo business was up 11% in the quarter. As Curt said, our International Instruments business was up 9%. We continue to feel very good about the trends and opportunities there.

Operator

And our final question comes from the line of Steven Lichtman with Oppenheimer.

Steven Lichtman - Oppenheimer & Co. Inc.

I was just wondering, just given the uncertainty around OtisMed and the strong product lineup on the Hip side, how are you keeping the sales force focused on the Knee side of the business in 2011, where are we with Triathlon and what should we be focused on, relative to product flow in Knees outside of OtisMed in '11?

Stephen MacMillan

We still feel great about Triathlon and its longevity. There was a recent registry data out of the U.K. that shows Triathlon has, by far, the lowest revision rate. And for everything, if people talk about evidence-based medicine and registries and everything else, we feel great about the data that's being generated there that I think will give a little shot in the arm even to our organization. So we'll obviously be continuing to look at little line extensions here and there and other things to keep that business fresh.

Steven Lichtman - Oppenheimer & Co. Inc.

Just on the Neurovascular business, obviously, you pointed to the two new products. Is there anything from a sales force perspective that needs to get invested in as well as in terms of getting that in order to get that growth up toward market level over the next 12 to 24 months?

Curt Hartman

I think, just like any of our other businesses, there are opportunities for sales force expansion in various markets. I'm not going to get real granular there, but as we get into the process of moving the business in the Stryker and all geographies, we'll obviously looking very deeply at what they have or what they don't have, where their presence is adequate and where there may be opportunities to enhance their presence. And we'll get into that as we further ingrain the business and get through some of the basic, what I would call month-one operational issues.

Operator

Ladies and gentlemen, that does conclude our Q&A session. I'll turn it over to you, sir, for closing remarks.

Stephen MacMillan

Great, thank you, Melanie, and thank you, everybody, for your time tonight. I know it's gone a little long here with a lot of questions. We continue to feel really good about our team and the results we're generating, and our conference call for our first quarter 2011 operating results will be held on April 19, 2011. Thank you, everyone.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the presentation. You may disconnect. Have a wonderful day.

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